Poverty comparison

13/12/2011 § 2 Comments

In this morning’s column in the Dominion Post, Phil O’Reilly tells us about income inequality [no link – can’t find one]. He tells us two things:

  • it isn’t the rich getting richer and the poor getting poorer, and
  • people are not stuck in poverty, because they can move to higher income groups.

I’m reasonably familiar with the US data on incomes, and less so with the NZ data. I did the usual poking around, and discovered that the two countries have quite different experiences.

Income growth: the US Center on Budget and Policy Priorities has some material on this. One key graph is this one:

As you can see, all the income groups have seen growth in after-tax income since 1979. It’s just that the bottom 20% has seen growth of only 18% over that time, less than one percent per year. So, the poor aren’t getting poorer, but neither are they benefiting from any broad-based prosperity.

In New Zealand, on the other hand, poverty appears to be reducing after spiking upward in the late 1980s and early 1990s. I can’t get the graphs out, but this MSD report [pdf, 12 pages] has the highlights.

Income mobility: over lifetimes, high mobility tends to moderate the inequality seen at any particular time. In the US, mobility is declining. A paper from the Boston Fed found:

Overall, the evidence indicates that over the 1969-to-2006 time span, family income mobility across the distribution decreased, families’ later-year incomes increasingly depended on their starting place, and the distribution of families’ lifetime incomes became less equal.

The good news is that NZ’s intergenerational mobility looks better:

The results show that only a small proportion of variance in income or SES was explained by the economic situation of people’s parents, indicating that other explanatory variables are more important.

So, things in NZ are more hopeful than in the US. Poverty generally trending downward, with higher intergenerational income mobility to overcome the lottery of birth. That’s not to say that I’d want to be poor in any country, just that things might be a bit better here.


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§ 2 Responses to Poverty comparison

  • Thorsten Heitzmann says:

    Sorry if the question is stupid, but in that US graph, is there some inflation adjustment? I looked up the original site and while they mention inflation-adjustment in another graph (the previous one on the original site), they don’t mention this for the graph you quoted.

    According to http://www.dollartimes.com/calculators/inflation.htm $1 in 1979 is equivalent to $2.98 in 2007.

    Can you enlighten me?

    • Bill says:

      Not a stupid question — graphs should be labelled properly. Although that graph doesn’t say it is in real dollars, it would have to be in order to tie with Figure 1 at http://www.cbpp.org/cms/index.cfm?fa=view&id=3629. Figure 1 has real incomes as an index with 1973 = 100. Eyeballing, it looks like 1979 is around 90 and 2007 is around 110. That gain of 20 percentage points would tie approximately with the 18% gain in the figure I’ve used.
      And just looking at that Figure 1, you can see how much your choice of starting and ending points matters. Their calculations from Census data indicate that real incomes for the bottom 20% in 2010 are the same as in 1973.

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